Insignia Financial chief executive Scott Hartley has called for explicit amendments to the government’s so-called Delivering Better Financial Outcomes bill to ensure it doesn’t counterproductively push up the cost of advice.
The re-worked Section 99FA of the Superannuation Industry (Supervision) Act 1993, as proposed in the government’s bill acting on the Quality of Advice Review, has emerged as a highly contentious matter slowing down what was meant to be the QAR’s uncontroversial Stream One.
The bill, tabled in Parliament in March, failed to address unexpected changes in a draft exposure bill around advice fee deductions from superannuation funds. Going well beyond the QAR’s seventh recommendation that “superannuation trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund”, the bill seemingly imposed new requirements on trustees to approve the deduction of advice fees.
ASIC and consumer groups have argued the bill only clarifies or codifies existing law, but representatives for advisers including the FAAA, FSC and Joint Licensee Group believe it imposes serious additional red tape requirements on super funds to check every piece of advice, while external advisers may need to provide proof that the advice in question is “personal”, among other obligations.
The government last week quietly made changes to the bill’s explanatory memorandum, as pushed for by super industry representatives including the Super Members Council and ASFA. The updated EM adds additional nuance that trustees are “expected to apply appropriate oversight controls to ensure that advice fees are consistent with the [bill’s] requirements”, seemingly watering down suggestions they would have to check every statement of advice.
Changes don’t go far enough
But in a statement to Investment Magazine, Hartley, the former Sunsuper boss who took the reins of the nation’s largest retail fund and provider of financial advice in March, said the changes to the EM do not go far enough.
“We acknowledge amendments the government has made to the bill’s supplementary explanatory memorandum,” Hartley said.
“However, this does not resolve the issue with the current drafting which may place an undue burden on superannuation trustees before they are able to satisfy members requests for payment of advice – a burden which may ultimately lead to higher costs for superannuation members.
“At a time when Australians are facing increasing cost of living pressures, it is important they can access financial advice when needed. This includes assisting superannuation members with the facilitation of advice funded through their superannuation where the member has provided their written consent.”
Hartley called for explicit amendments to the proposed section 99FA, not just the EM, which legal sources say carries less weight and is less enforceable in the case of a dispute.
The firestorm over the bill commenced just hours after Labor MP and assistant minister Andrew Leigh tabled it in Parliament in March while Minister of Financial Services Stephen Jones was on his honeymoon.
The corporate regulator has sought to play down the significance of the “revised requirements” in the bill, making clear that it does not expect trustees to check every piece of advice and the bill is consistent with the existing law.
Urgent need
The so-called Joint Associations Working Group, a loose consortium of adviser and accounting bodies including FAAA, FSC and SMSF Association, wrote a joint letter to Treasury on Tuesday stressing “urgent need” for amendments to 99FA, seemingly unappeased by the changes to the memorandum made on May 29.
The letter, seen by Investment Magazine, argues the bill as drafted would result in “increased compliance burden”, “restrictions on general advice” and a “chilling effect on advice accessibility”. Citing advice from a senior counsel, the letter argued that the “consequences of these issues are far-reaching and negatively impact consumers by increasing costs, reducing access to necessary advice”.
But in its submission to the inquiry surrounding the bill, Super Consumers Australia said that, while it would be willing to support efforts clarify the existing law in the EM, that it maintained its hardline stances against fee deductions from super “on principle”.
“People may be more likely to value advice if they have to actively pay for it from their own pocket, rather than have fees deducted from their super account,” SCA argued, warning of pre-royal commission-style fees for no service conduct.
